Question

ATC Demand MC Cost of Webcam BARABARBERBESAR BRAS Price of Webcam $80 $72 $64 $56 $48 $40 $32 E $24 $16 $8 $0 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 Quantity of Webcams AVC Supply 2 8 9 10 4 5 Quantity of Webcams Assume the perfectly competitive webcam industry in this question is made up of identical firms. The graph on the left shows the costs of producing webcams at one of these firms. The graph on the right shows the supply and demand for the webcam industry. Assuming the market is in a short-run equilibrium, how many firms are currently in the webcam industry? 80 firms 50 firms 25 firms 100 firms

Answer 1

Ans: 100 firms

Explanation:

Under perfect competition , the industry is the price maker whereas the firm is the price taker. It means there is an unique price in the market . Firms are not able to change the market price. They can sell or produce as much as they can at the prevailing market price.

In the above figure ( right side ) , the market equilibrium price is $40 and equilibrium quantity is 500 Webcams.

In this market structure , there are large number of sellers selling the homogeneous product.

In the left side figure , the  firm's equilibrium price is $40 and equilibrium quantity is 5 Webcams.

So the total number of firms in this industry = 500 / 5 = 100